FY 2007 SEED Act Implementation Report

FY 2007 U.S. Government Assistance to and Cooperative Activities with Central and Eastern Europe

Report

Country Overview

U.S. FOREIGN POLICY AND FOREIGN ASSISTANCE OBJECTIVES & PRIORITIES

The overall goal of USG assistance is to help Montenegro become a stable, democratic, prosperous country, firmly anchored in Euro-Atlantic institutions. Such a country will be a strong partner for the U.S. in the region. The United States recognized Montenegro’s independence on June 12, 2006, and established its embassy in Montenegro on October 5, 2006. The first U.S. Ambassador arrived at post on September 18, 2007. Foreign policy priorities for the U.S. in Montenegro include helping to consolidate economic and political reforms and aiding Montenegro's rapid integration into the wider Euro-Atlantic community, including the North Atlantic Treaty Organization (NATO), the European Union (EU), and the World Trade Organization (WTO), in order to help ensure that Montenegro will be a reliable partner in furthering USG policy interests in this region. Montenegro's Euro-Atlantic integration will stabilize both the country and the region, eliminate a past source of foreign policy concern, and open additional markets to U.S. trade and investment. It will also provide a secure destination for U.S. citizens traveling abroad.

To help further these foreign policy objectives, USG assistance is focusing on helping the country to effectively address the following needs: closing the north-south development gap; supporting the establishment of the rule of law with the emphasis on fighting organized crime and corruption; diminishing the relative isolation of the world’s newest country; and consolidating democratic gains made to date so that all Montenegrin citizens, regardless of their ethnicity, are able to have their voices heard and represented in Montenegrin institutions. Additional priorities in Montenegro are to combat terrorism and extremism, and prevent trafficking in persons, weapons, and drugs. Combating corruption remains one of the biggest challenges for donor governments as well as the Government of Montenegro (GOM). While non-governmental organizations (NGOs) have played a key role in promoting public awareness on transparency in governance and combating corruption, without the successful prosecution of high level criminal cases and organized crime, efforts to combat corruption in Montenegro will remain incomplete.

OPERATING ENVIRONMENT

Montenegro’s impressive economic progress and development of its democratic government have been very encouraging for a new country. However, it is in a historically unstable neighborhood, with nascent institutions that need strengthening and support. It is critical for the USG to capitalize on the investments made to date and finish the job, ensuring a strong democratic nation to serve as an ally in a region prone to instability.

Prior to the independence referendum in May 2006, the political arena in Montenegro was fixated on the question of independence, which hindered progress on needed democratic and economic reforms. After independence, Montenegro has faced additional challenges, including having to establish a number of new institutions and new capacities to deal with its new status. Reform efforts have again suffered due to a prolonged and heated debate over the adoption of the new Constitution, which delayed passage of numerous pieces of reform legislation, some of which detailed the responsibilities and authorities of institutions key to moving Montenegro’s reforms forward.

While the Constitutional issue was eventually resolved peacefully in Parliament, the debate exposed internal rifts among ethnic groups, highlighted links with radical parties in Serbia among some political parties, and left the public, according to a USG sponsored focus group study, increasingly dissatisfied with political leaders across the board for not truly addressing important issues. Specifically jobs, corruption, and a secure future for their children remain high on the list of priorities for the vast majority of Montenegrin citizens. It is clear that Montenegro remains in transition and that Montenegro's citizens have not yet fully seen the benefits of the move to a market-oriented democracy.

While there has been progress, weaknesses remain, largely in the North-South development gap. The northern region, representing over 53% of Montenegro’s territory and one third of its population (including large concentrations of ethnic minorities), lags behind the rest of the country in every leading economic indicator and serves as a serious stumbling block for continuing Montenegro’s forward momentum into Euro-Atlantic structures.

Montenegro’s social climate is marked by ethnic tensions and disparity. History, politics, and geography have kept Montenegro, a country roughly the size of Connecticut with a population the size of New Hampshire, isolated from the rest of the world. Most worrisome is the fact that an entire generation now in their late teens and early 20s, who will soon be called upon to assume leadership in this country, have only the Balkans of the Milosevic years, war, ethnic tension, and international isolation as a common heritage. This, the growing and pervasive corruption, and organized criminal activity in Montenegro remain huge obstacles in securing the long-term stability of reform processes in Montenegro.

Additional immediate and long-term concerns remain the lack of an established and enforced rule of law, the relative isolation of the new country, and the developing but unconsolidated democratic system. The Montenegrin Parliament falls short of effectively being able to fulfill its role of providing a sound legislative framework and implementing necessary reforms for improving economic growth. Montenegro's long-term political and economic stability depends upon its ability to efficiently provide policy and budget oversight of executive branch agencies. In a post-independence period, it is essential for reform and institutional development efforts to continue.

Now that the pressure to focus solely on the independence issue is gone, and the new Constitution has been adopted, leaders can and need to move forward. However, they will need guidance, and probably a political push from the international community, in order to focus their efforts most effectively towards meeting their Euro-Atlantic integration goals, especially those areas that directly challenged the corrupted interests entrenched in several sectors throughout Montenegro.

FY 2007 Country Program Performance

PEACE AND SECURITY

Military to Military Cooperation - During FY 2007, the objectives of the military assistance activities were to foster military to military cooperation and bring Montenegro’s military forces up to the standards necessary for eventual NATO membership. Montenegro began its work towards possible NATO membership with the launching of its participation in the Partnership for Peace program in November 2006. The Embassy received its first full-time resident Defense Attaché in the summer of 2007, and this will continue to build the USG-GOM bilateral defense relationship. The recent establishment of the State Partnership Program between Montenegro and Maine is already bearing fruit through military to military exchanges and the GOM, U.S. Embassy, and Maine officials are eager to expand the program to other sectors of government and civilian to civilian exchanges.

Montenegro’s political and military leadership have given high level commitment in fully utilizing USG assistance in reforming their military and security operations in line with becoming full partners in Euro-Atlantic institutions. This high level commitment was demonstrated with the quick signing of a Status of Forces Agreement and Article 98. The GOM has made rapid progress in reforming its military structure toward a more democratic and civilian controlled operation and has established its own national security and defense strategies as well as passed laws regarding defense and armed forces. The GOM also assisted the USG’s struggle against terrorism by donating to the Islamic Republic of Afghanistan 1500 M70 rifles, 100 M72 light machine guns, and 250,740 rounds of 7.62mm ammunition in August 2007. This donation was Montenegro’s first concrete contribution to support NATO and the War on Terror and will play a critical role in Afghan Security Forces' efforts to stabilize democracy in Afghanistan. The GOM sent a high-level delegation to present the donation and explore areas in which the GOM could make a more significant contribution to the International Security Assistance Force (ISAF). The GOM has stated its desire to deploy observers to ISAF within the next four months. The GOM has worked cooperatively with NATO to help ensure stability in the region and is due to sign a NATO Transit Agreement, which will allow NATO forces to transit Montenegro in the event reinforcements are needed in Kosovo.

Security Sector Reform - During FY 2007, the rule of law objectives focused on development of joint police and prosecutor capacity to combat organized crime and corruption, and to increase management skills and professionalism in police administration. Rule of law programs have worked to assist the development of a skilled and effective cadre of organized crime investigators via training, certification, equipment donations, and task force operations. They have also assisted Montenegrin efforts to create a police academy that meets international standards in personnel selection, training, certification, and records management, to include the creation of a cadre of school-based police officers for drug education.

In FY 2007, the USG provided training to 215 Montenegrin law enforcement professionals in several specialized activities including: organized crime, use of surveillance equipment, financial investigations, community policing, internal affairs, and forensic training. In particular, two iterations of the Organized Crime Certification Course were conducted for police investigators. This regional curriculum provides a common foundation course for all current and aspiring organized crime investigators including an overview of the issue locally and in the Balkans and an understanding of the need for international cooperation and the application of an enterprise theory of investigation within existing laws. Another specific example: training was provided to forty community policing officers to perform the job of School Resource Officer.

Also, Montenegrin law enforcement, members of the Financial Investigative Unit, customs, tax inspectors, central bank employees, and prosecutors participated in training in investigative techniques to increase knowledge in recognizing money laundering, terrorist financing, understanding of the daily operations of interagency task forces and working groups, as well as actual hands-on training on specific money laundering identification techniques. In addition, USG assistance provided the following equipment to the Montenegrin police academy: simultaneous classroom interpretation system, a laser-based firearms training system, drug display kits, and forensic lab equipment such as Automated Fingerprint Identification System (AFIS) and Ion analysis equipment. These donations provided the GOM with the following capabilities: more effective use of class time, more frequent firearms qualification (both at the academy and in outlying stations);,"shoot-don't shoot" discretionary training, and visual aides for community-based presentations on illicit drugs.

As a result of USG funding, training enabled the officers to work within a school setting to be a non-punitive, preventive resource to the teachers, parents, faculty, and students. New skills obtained via USG training give Montenegrin police and prosecutors the ability to work more closely and effectively in the investigation and prosecution of organized, transnational crime and terrorism cases. The AFIS system has resulted in a major increase in criminal identifications: 160 identifications have been made by this system over a ten-month period of time, three times the identification rate using the older manual system of comparing latent prints collected at crime scenes to prints on file. Finally, the Ion analysis equipment has provided the Montenegrins with improved capabilities for discovering explosive residue traces.

Border Security - The primary goal of the border security program is to counter proliferation of weapons, specifically to deter movement of illicit weapons, goods, and trafficked persons across Montenegro's borders. The USG-funded program worked with the GOM to implement and enforce export controls, which was also coordinated with the EU to fill urgent gaps not covered by other donors’ assistance or to complement their efforts.

Montenegro is taking steps to improve its border control regime, using USG assistance to strengthen, implement, and enforce controls through ongoing revisions to customs and criminal codes. Montenegro continues to extend cooperation with the U.S. and regional states in narcotics interdiction and enforcement of non-proliferation export controls.

It is in the interest of the U.S. to have all countries contribute to the fight against money laundering and terrorist financing. By increasing the knowledge level and capacity of the GOM, it will lessen the opportunities for criminals to use the country as a venue to launder funds or raise funds for terrorist activities. Additionally, because of its location along the Balkan Route, whereby narcotics move from Afghanistan to Western Europe, raising Montenegro’s capacity to recognize and interdict contraband and cash moving illegally through the country will provide a break in the movement of these items and will assist in the war on drugs.

Public Diplomacy - Public diplomacy program objectives are to increase public understanding of U.S. foreign policy objectives for Montenegro and the region. Small grants to NGOs and independent media served to better inform the public about our programs and topics related to USG policy priorities. U.S. speakers educated Montenegrin audiences on topics of rule of law with the visit of a U.S. circut court judge. In addition the PD program provided grade school children a cumputerized NATO member state map identification game to improve NATO public education efforts.

GOVERNING JUSTLY AND DEMOCRATICALLY

Strengthening civil society and democratic political parties, enhancing the parliament’s institutional capacity, fostering an independent media, and supporting more effective criminal investigations and prosecutions have been primary areas of focus in this area. USG support has earned significant dividends in bringing stability to Montenegro, as evidenced by the peaceful independence referendum conducted in line with international standards and the October 2007 passage of a new Constitution.

Rule of Law - USG programs in the area of rule of law aimed to build the capacity of the criminal justice system to effectively investigate and prosecute corruption offenses, war crimes, and organized crime in accordance with international standards. The USG supported training courses, conferences, and study visits in order to build the capacity of Montenegrin prosecutors and law enforcement officials. For example, approximately 70 prosecutors and police members were trained in the area of war crimes prosecution, use of forensic evidence, fight against corruption, victim/witness support and witness protection. USG organized conferences and workshops provided fora for fruitful discussion of achievements and challenges in domestic war crimes prosecution, promoted the concept of the Victim Witness Support Service, promoted regional and international cooperation of the Montenegro Witness Protection Unit (by expanding the parties to the Witness Protection Cooperation Agreement to include Serbia, Bosnia and Herzegovina, Montenegro and Bulgaria), enhanced prosecutors' capacity to use the forensic evidence in complex homicide cases, and enhanced the capacity of the Montenegrin prosecutors and police to more successfully prosecute corruption cases by way of better use of available investigative tools and international best practices.

Parliamentary Strengthening - USG assistance helped Montenegro’s Parliament to improve its lawmaking and oversight capacities and ultimately help political parties, elected officials and legislative institutions become more responsive to constituents, as well as more transparent and accountable for their actions. USG assistance has focused on institutional support for the Montenegrin Parliament to better enable it to develop sound legislation and implement reforms necessary for improving economic growth. Montenegro’s long-term political and economic stability depends in part on the Parliament’s ability to efficiently provide policy and budget oversight over executive branch agencies.

The USG provided technical assistance and training to the Parliament by focusing on five needs: more efficient legislative operations; a better developed committee structure; more professional staffing resources; better organized administration and strategic planning; and organized constituency outreach. Activities that support the professional development of legislators; encourage greater public participation; and promote the principles of transparency and accountability were carried out in FY 2007.

Notable progress has been made with USG support in the area of parliamentary oversight by ways of a New Rules system. An important contribution involves enabling the Parliament to enforce its right to invite the Prime Minister to appear in Parliament to answer questions three times during the year. The Prime Minister, when appearing in Parliament, answered all questions. Results achieved also include the increased presence of more Parliamentary Ministers during question time, compared to prior years when the Ministers would send Deputy Ministers in their place. Even though the U.S. style of hearings is still not a regular practice, there were a number of times during FY 2007 when ministers appeared before committees. This includes two hearings in the Security and Defense Committee with the presence of the Police Chief and Intelligence Agency, one hearing in the International Affairs Committee with the Foreign Affairs Minister, and one long hearing in the Budget Committee with NGO participation.

Finally, political parties have demonstrated a higher level of understanding and respect for parliamentary business by the resignation of MPs with other full-time jobs. The MPs cited that, given their full-time jobs outside the Parliament, they lacked the time MPs need to dedicate to the Parliament.

Civil Society - USG civil society focused on strengthening the legislative framework for NGOs, and advocacy and monitoring capacity of the NGO sector in Montenegro. For example, the USG continued to work with NGO watchdog coalitions to monitor the enforcement of reforms passed. Activities also supported a coalition of NGOs in implementing a National NGO Strategy drafted in 2006 which set preconditions for financial, operational, and programmatic sustainability for the entire sector. NGOs have played a key role in promoting public awareness on transparency in governance and combating corruption. The USG increased the number of local watchdog NGOs to be included in the 2007 civil society program (31 as opposed to 20). This was done to increase anti-corruption efforts in Montenegro and was achieved due to cost-efficiencies in the sub-granting structure.

Public diplomacy programs, including U.S. speaker and student exchange programs, reinforced USG efforts to support Montenegrin civil society. For example, a renowed civil rights leader from America spoke to NGOs about how the United States has met the challenges inherent in a multi-ethnic society (an issue of particular relevance for multi-ethnic Montenegro). In addition, USG small grants supported 14 Montenegrin civil society organizations in activities aimed at promoting democracy by advancing respect for the rule of law, ethnic integration, and youth outreach.

Overall, USG civil society programs have increased transparency across a wide spectrum of government institutions through a coordinated and strategically focused civic advocacy and NGO watch dog programs. NGOs had significant input and/or influence of 58 pieces of legislation passed by the GOM. The higher figures are accounted for by the increased number of NGOs participating in USG sponsored program, some which were not directly financed for their work but chose to participate in the program, mostly through their work with the new NGO coalition "Together towards the Goal." As a result of USG training, NGOs will have access to some of the most important prerequisites for sustainability, such as a clear system of self-regulation and transparency, better cross-sector partnerships, and a powerful platform for advocacy and watchdog activities.

Media Reform - USG assistance played a key role in media reform in Montenegro, and was directed toward implementation of the media reform law (passed in 2002), journalist training, and transformation of the formerly state owned media outlet into a public service broadcaster. USG assistance also aimed to improve the reporting and sustainability of independent media outlets through five workshops for members of independent media outlets as well as a media professional tour to the U.S. for specilized media training.

In 2007, a USG-funded program changed the focus of its media support activity in several ways. First, the USG redirected its training resources to the public service broadcaster (PSB) of Montenegro in order to address a perception in late 2006 that the PSB programming lacked impartiality in its programming. Second, the program engaged an NGO to monitor the programming of PSB and assess its impartiality and ceased direct technical assistance to the outlet. Third, the program scaled back support to the self-regulatory body overseeing journalists in line with a plan to reduce the entity’s dependence on donor support. The re-tooling of the program has paid off. Media self-regulation continued at 2006 levels of quality even with decreased financial support. USG-funded monitoring has increased awareness among PSB management and journalists of aspects of its programming that have not adequately served the public interest. Training for PSB news editors and journalists has enabled PSB to perform at higher standards. Media advocacy efforts have produced concrete improvements in the implementation of the media reform law and related laws. For example, enforcement of the Law on Free Access to Information has improved, largely thanks to the USG-assisted media NGO partners who have tested the system with thousands of requests (and achieved an average of 60% response rate from the public bodies tested).

ECONOMIC GROWTH

U.S. assistance has focused on ensuring that a free market economy replaces the socialist structures left behind by the collapse of Yugoslavia. Since 1998, the USG has had in place a number of large and small scale assistance interventions at the macro-economic level through both USAID and the U.S. Treasury. The USG provided policy advice, technical assistance, and limited commodity donations which helped produce two successfully implemented five year GOM Economic Reform Agendas that helped build the institutional capacity of GOM bodies to facilitate their transition to a liberalized, market-based economy. Montenegro has shown significant results from these efforts.

In terms of Montenegro’s macroeconomic development, unemployment decreased from 17% to 15.5%; revenue performance has vastly improved -- so far it is 24.82% higher than planned for the first nine months of 2007, and is 26.24% higher than the same period last year. The central government debt decreased, including some early buy-outs of long-term debt; and privatization proceeds increased by 42% compared with the same period last year. USG has helped Montenegro establish a sustainable legislative and institutional infrastructure for a market economy. Particular emphasis was placed on strengthening the capacity for implementation of fiscal policy for both revenue and expenditures within MOF and its related entities.

Fiscal Policy - In 2007, the USG helped strengthen structural reforms within the Ministry of Finance (MOF), including improving its work on developing its internal structure, procedures, and staffing. It also helped improve its budgetary preparation capacity. The USG supported the MOF’s reorganization and establishment of policies and procedures for effective oversight role of the MOF over other executive branch budgetary units. Work was completed on developing a fraud prevention plan for the MOF to lay out a clear, long term strategy to mitigate the possibility of fraud, waste, and abuse within government.

Private Sector Competitiveness - Having a functioning legal and economic framework in Montenegro is critical if the country wants to attract the domestic and international investment that will lead to sustained economic growth. Montenegro has a strong legal framework in place to facilitate private sector growth; however Montenegro must continue their ongoing work to institutionalize those reforms, especially in bringing these reforms to the local operational level where businesses operate.

USG economic growth assistance has focused on further developing the legal and institutional infrastructure in Montenegro directly impacting economic growth. Under the business enabling environment, efforts continued on consolidation of institutional reforms adopted thus far. Support to the Commercial Courts enhanced implementation of commercial laws, increased transparency and reduce business barriers; and provided assistance to the Business Registry, including installation of a new computer system allowing businesses to register on-line through any of the 21 municipal basic courts rather than traveling to the capital city of Podgorica. This reduced the time for registrations from a high of 75 days to a maximum of three days. The project completed its support for the Central Bank of Montenegro (CBOM) through the development of the new Law on Banks creating the needed framework for enhanced supervision of banks in the country, compliance with international Basle Core Principles and EU directives. This project is scheduled to end by June 2008.

During the last few years, with a great deal of USG assistance and support, Montenegro has created a business-friendly investment climate, leading to impressive economic growth. The country established the lowest corporate tax rate in the region (9%) and dramatically improved its tax policy. In addition, providing assistance in developing public and private partnerships at the municipal and regional level that have provided community matching grants that create jobs and generate sustainable income has also been a significant part of this activity.

While Montenegro is improving in some areas such as the time to start a business and improved insolvency procedures, the steps to get to the point of registration still requires multiple steps through a maze of local and republic level government bodies, according the World Bank 2008 Global Report on Doing Business. In addition, there is a severe shortage of capacity among local actors both private and public in basic business knowledge that only further exacerbates a very disturbing trend noted in a growing economic development gap between the northern region of Montenegro and southern region.

In micro-enterprise development, USG assistance has primarily focused on capacity building with NGOs and associations whose members are entrepreneurs and farmers or public institutions which provide services to the private sector. Sub-grants fund technical assistance, operational equipment, innovative productive equipment or promotional assistance designed to advance private sector development and to act as a model to peers to encourage replication of these activities. It should be noted that most enterprise level assistance has been done through tourism initiatives in which the USG works with individual entrepreneurs on product/service development, hospitality training, and promotion in addition to providing them with direct business linkages with tourists. Additional support has been targeted to assist the Ministry of Tourism package, market, and negotiate tranparent privitazation tenders for key state owned tourism assests. Tourism and tourism investments, particularly along the Adriatic coast, are booming, and the independent World Travel and Tourism Council has ranked Montenegro as the fastest growing tourism destination in the world.

Agriculture - USG agricultural development goals are to address complex agricultural policy and infrastructure issues that help the country increase its capacity to adhere to international trade rules and establish transparent, science-based regulatory structures resulting in expanded trade potential. Specific assistance in the last year focused on Ministry of Agriculture, the Biotechnical Institute and the Institute for Strategic Studies and Prognosis (ISSP) to present the basic tools of commodity analysis and the ways that these can be used in policy analysis.

USG funding provided two seminars on balances and analysis of select fruits and vegetables; one seminar on cattle and beef; initial training for 18 people on basic principles of farm management including farm accounting; and a workshop for 20 price reporters on better dissemination and more informative commentary. The USG also held a training session on setting up an initiative of price reports from slaughterhouses, and more frequent reporting for in-season fruits and vegetables. Additional training included: two scientists trained on animal health diagnostic skills; 20 public official representatives trained on swine health and bio-security management to strengthen local capacities to diagnose and control animal diseases; 20 veterinarians, farmers and milk quality specialists from government and private sectors trained on dairy health and milk quality management; five public official representatives trained on Hazard Analysis and Critical Control Points (HACCP) principles for disease control and prevention; 25 public officials and five industry representatives trained on animal disease disaster emergency response ; and five public officials from the Veterinary Inspectorate trained on pasteurization tests and controls, a priority risk area for processed dairy products exported to U.S.

A key achievement of USG technical assistance included an agreed upon structure of contract and terms of reference between Ministry and institutes providing the analyses. Taken together, these programs have strengthened local capacities to diagnose and control animal diseases, improve the safety and quality of products, and expand trade options for the regional market.

FY 2007 Measures of Country Performance

The following data are based on the Monitoring Country Progress in Europe and Eurasia system developed by the United States Agency for International Development (USAID) to measure and track progress in the region. The system uses four different indices to monitor progress, drawing on readily available standardized country-level data on economic reform, economic structure and performance, democratic reform, and human capital. The primary data sources are the European Bank for Reconstruction and Development (EBRD), the World Bank, the United Nations Children’s Fund (UNICEF), and Freedom House. The data for each of the four indices are converted and standardized to a 1-to-5 scale, with a “5” representing the best performance of the Eastern Europe and Eurasia region, and a “1 the least advancement of the region.

Montenegro’s Democratic Reform* Scores in 2006 compared to Romania and Bulgaria in 2002

The graph to the left shows Montenegro’s democratic reform scores in 2006* (the grey shaded area) as compared to the average of Romania’s and Bulgaria’s democratic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

*Actual 2007 scores not yet available

Montenegro’s Democratic Reform Scores in 2006 compared to its Reform Scores in 2003

The graph to the left Montenegro’s democratic reform scores in 2006* (the grey shaded area) as compared to its democratic reform scores in 2003 (the bold line).

*Actual 2007 scores not yet available

* Democratic reforms include the electoral process (the extent to which elections are free, fair and competitive), civil society (primarily NGO development), the independence of media, public governance and administration, rule of law (primarily judicial reform) and the scope of corruption as well as anti-corruption income.

The graph to the left shows Montenegro’s stage one economic reform scores in 2007* (the grey shaded area) as compared to the average of Romania’s and Bulgaria’s economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

The graph to the left shows Montenegro’s stage one economic reform scores in 2007* (the grey shaded area) as compared to the combined score of Serbia and Montenegro economic reform scores in 1999 (the bold line).

The graph to the left shows Montenegro’s stage two economic reform scores in 2006* (the grey shaded area) as compared to the average of Romania’s and Bulgaria’s economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

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